Refugees: the billion euro industry
In 2015, over one million asylum seekers arrived in Germany and an estimated 800,000 stayed in the country. Once they arrive in Germany, they are registered in “welcome centres” and then distributed in the 16 states according to tax revenue and population - what is known as the “Königsteiner Schlüssel”.
by the Know Nothing Enquirer 17/05/2016
In other words, most refugees are allocated in the western states, where housing is scarce and expensive — especially in the big cities. The states then allocate them according to their own system to the districts and municipalities. Most municipalities did not have the capacities to accommodate the huge amount of refugees assigned to them. Within a very short period of time they had to organise housing facilities for thousands of people - in most cases tents, containers, school gyms, flats and even hotels. The market adjusted very quickly and the prices of containers, camp beds and tents increased tremendously. However, there are huge regional discrepancies in the accommodation costs of refugees. This suggests that a lot of businesses profited from — and even exploited — the desperate situation of many municipal administrations. The German investigative journalism team CORRECT!V researched the “refugee industry” for half a year. They recently published their results in the newspaper Die Zeit (No. 21/2016).
There are numerous examples of public outcry after excessive spending was made public. In February 2016, the city of Berlin acknowledged (after internal documents were leaked) that it was negotiating with the London-based Grand City Hotels to rent 22 hotels in Berlin to house 10,000 refugee seekers. According to the FAZ, the company would have charged €50 per refugee per night (€18,250 per year) with a guaranteed 95% occupation rate (a lot higher than the average 60% in Berlin) by the city for four years. However, after the negotiations became public, the city announced that it would not go through with the €600 million deal. Nevertheless, there are numerous examples where the city pays such grossly inflated prices. CORRECT!V mentions a hotel that was converted into a refugee "camp". The owner charges the city €40 per refugee per night. Five refugees share a room, earning the owner €200 per night per room. The same room (with a double bed) only cost €75 per night for tourists - a pretty lucrative deal for the owner.
The Berlin state audit office criticised the Berlin State Office for Health and Social Affairs (LAGeSo) in an internal document for working inefficiently and wasting taxpayer’s money. In many cases the state failed to make EU-wide call for bids and in some cases acted completely non-transparently. The audit office concludes in the document that the state administration failed to centrally plan or control the accommodation of refugees. It made numerous small arrangements and often did not even know the exact amount of spaces they were paying for.
The newspaper Die Welt reported that the price per square meter of a container had increased from €1,700 in May to €2,400 in October in the Bavarian city of Regensburg. In other cities these prices were apparently even higher - often exceeding the prices of row houses.
CORRECT!V investigated whether these examples are merely outliers and how common these exploitative practices really are. Every state has its own system of allocating refugees and reimbursing municipalities and districts. Some states reimburse the actual costs and others provide a lump sum per refugee. The federal administration reimburses the 16 states €670 per refugee per month. No central agency exists that records the costs of all districts and municipalities. So the investigative journalist team had to request the information from all 402 cities and districts individually.
The cheapest and the most expensive districts/cities to accommodate refugees (January-July 2015; price per refugee per month). Graph: Zeit Online; Data: CORRECTIV
Most cities, especially the smaller ones, were overwhelmed with the high number of refugees allocated to them. Many chose to outsource the management of refugee camps to charitable institutions (such as Caritas) or private companies. One of them is European Homecare — in charge of 100 camps with over 16,000 refugees. According to CORRECT!V, the revenue of the company increased from €17 million to €100 million in the last two years. Further, the daily rates the company charges have increased in the same period by 50%. There are also huge regional discrepancies in the prices charged by European Homecare. The city of Velbert in the Ruhr Area pays €1,500 per refugee per month whereas the city of Oldenburg pays only €400 (excluding catering, but with kitchens). The spokesman of the company denies making money with refugees but admits that they are profiting from the desperate situation of the local administrations. According to him, this is merely a normal process of the free market and not objectionable.
The municipality and district administrations are also to blame. While Oldenburg has been a long customer of European Homecare and has set up a “refugee task force” a long time ago, in heavily indebted Velbert, refugees were managed on the side by the city’s welfare department. In other words, while Oldenburg had a long-term strategy, Velbert had to act out of desperation and was overwhelmed by the refugees allocated by the state.
The €9,000 room in Velbert. Not exactly luxurious. (Photo: ZDF Zoom/CORRERCT!V)
The CORRECT!V authors criticise that municipalities and districts fail to cooperate with each other. Many sign confidential contracts and do not publicise their expenses, claiming the contracts are “business secrets”.
CORRECT!V only received data from 71 of the 402 cities and districts. Most of them only submitted the average costs of accommodation. Municipalities often rent numerous properties that vary hugely in price — e.g. containers, school gyms, holiday flats (often at a grossly inflated daily rate) and hotel rooms. In the districts/cities that gave further details on the cost of the various forms accommodation, prices reached from €3 to €50 per refugee per day. While the rental prices obviously vary quite significantly across the country, the cost of renting or buying containers should be the same. However, even with containers, huge regional discrepancies exist and can often only be explained by how well the local administration bargains with the respective company (or how late they acted). In some instances the contracts oblige local administrations to pay a lump sum per bed, even if it is not occupied by a refugee.
The solution to this, the investigative journalists argue, is further cooperation. A national database should be established to enable municipalities/districts to get a precise idea of the costs of accommodating refugees and prevent private companies from exploiting their desperate situations. That could prevent a company, such as European Homecare, from charging €400 in one city and €1,500 in another. Further, not only would it help municipalities to get an idea of what the cost of housing refugees actually is, it would also give the public a tool to check government spending and force local administrations to act more responsibly with the taxpayer’s money (if it were to be public).
The cost of the migrant crisis has huge political dimensions. Therefore, it should be in everyones interest to try to make the processes as transparent and cost-efficient as possible. Austria’s chancellor is first European leader to fall victim to the crisis. The right-wing FPÖ is likely to win the presidential elections this weekend. In Germany, the populist party AfD is rivalling the SPD in some parts of the country.
According to a recent estimate by the German Ministry of Finance, the total domestic costs of the migrant crisis for 2015 were €20.9 billion. Until 2020 the ministry expects to spend another €93.6 billion. This calculation estimates that the amount of refugee seekers entering the country will drop significantly and that 55% of recognised refugees will have a job after five years. This is a significant increase to the estimate by the Ministry of Labour and Social Affairs in October 2015 (initially the federal government had estimated the total cost to be around €1 billion). Then the ministry had estimated that it would not spend more than €7 billion per year on refugees (all numbers in addition to the existing budget).
This might also explain why many municipalities/districts try to conceal the real costs they pay per refugee. Newspaper headlines that refugees are being housed in hotels at huge costs do not exactly encourage a “welcome culture”. They might fear that making the costs public could make even more voters turn to the anti-immigration parties. However, if this were the case, it would be a very short-sighted solution. In an age of austerity policies and conservative finance minster Wolgang Schäuble's almost obsessive “black zero” policy — of not making any new debts — the ever increasing cost of the migrant crisis is extremely politically laden. Sigmar Gabriel, the social democratic vice-chancellor, even openly criticised Schäuble for his fiscal policies and demanded a “new solidarity project for our own population” to prevent “society from breaking apart”. Making municipal expenses and contracts more transparent would be a first step.
Das Geschäft mit den Flüchtlingen #DokuCorrectiv mit ZDF Zoom (in German).